lecture 5 the open economy, unemployment 1. lecture 5. the open economy, unemployment 2 1. to...
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Lecture 5. The Open Economy, Unemployment
2
1. To acquaint students with the terminology necessary for understanding
the open economy.
2. To provide a simple model of international flows of capital and goods,
emphasizing that these ultimately depend upon the determinants of
saving and investment.
3. To present a simple model of the real exchange rate, emphasizing its
role in ensuring that the current account and the capital account sum to
zero.
4. To explain the determination of the nominal exchange rate.
The Open Economy
Lecture 5. The Open Economy
3
• Flows of goods and services between nations
• Financial flows between nations
Lecture 5. The Open Economy
7
Saving and Investment in a Small Open Economy
• Capital Mobility and the World Interest Rate
• Why Assume a Small Open Economy?
• The Model
Lecture 5. The Open Economy
8
Lucas Paradox:
Why does not capital flow from developed countries to developing countries?
Lecture 5. The Open Economy
9
Exchange Rates
• Nominal and Real Exchange Rates
• The Real Exchange Rate and the Trade Balance
• The Determinants of the Real Exchange Rate
Lecture 5. The Open Economy
12
Exchange Rates
• Nominal and Real Exchange Rates
• The Real Exchange Rate and the Trade Balance
• The Determinants of the Real Exchange Rate
• How Policies Influence the Real Exchange Rate
Lecture 5. The Open Economy
17
Exchange Rates
• Nominal and Real Exchange Rates
• The Real Exchange Rate and the Trade Balance
• The Determinants of the Real Exchange Rate
• How Policies Influence the Real Exchange Rate
• The Determinants of the Nominal Exchange Rate
Lecture 5. The Open Economy, Unemployment
20
1. To show that unemployment is the natural consequence of labor force
dynamics and that the rate of unemployment is determined by the rates of
job separation and job finding.
2. To discuss how the process of job search leads to frictional unemployment
and how government policies such as unemployment insurance influence the
amount of frictional unemployment.
3. To discuss how wage rigidity leads to structural unemployment and also the
various causes of wage rigidity (minimum wages, unions, and efficiency
wages).
4. To teach some of the important facts about patterns of unemployment in
the United States and in Europe.
Unemployment
Lecture 5. Unemployment
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• Frictional Unemployment
• Structural Unemploymento Minimum wage laws
o Unions and Collective Bargaining
o Efficiency Wages